and raise our FY14/15e EPS by 12-9% as we factor in the Q3 beat and incorporate higher sales of Divalproex ER and exit from Japan which was loss-making so far. We also increase our target price to Rs 1,075 (earlier R760) as we move to 18x FY16e core EPS.

Cadila reported its highest-ever quarterly ebitda in Q3FY14 and beat estimates by 20%. This was driven by Divalproex ER ($15-20 million) where Cadila is Authorised generic (margins = 3-4x company average). In our view, Q3 is a turnaround quarter, as it marks the bottom for run-rate in India sales — full impact of pricing policy is factored in and also impact of loss of two products to Boehringer is factored in; JV profitability with Hospira has bottomed out; and Cadila should turn Free cash flow positive now with capex level capped at Rs 500-600 crore and cash flows expected to improve with launch of Azelastine (H1 FY15), Niapsan (H2 FY15), Toprol (H2 FY15), Transdermals (H1 FY16), Asacol HD (H2 FY16), key Nesher products (Focalin XR & Ritalin LA in H2 FY16).